Operatorship rights, capacity challenges stall take-off of $15bn divested assets

 

TWELVE years after taking over divested assets of International Oil Companies (IOCs) worth $15 billion, local oil firms operating in the upstream segment of the country’s oil and gas sector are yet to add a single barrel of oil to the country’s crude production figures.
The divested assets by some of the IOC’s included but limited to Shell’s Oil Minning Lease (OML) 29 and Nembe Creek Trunk acquired by Aiteo for $2.7 billion,Conocophillips acquired by Oando Energy Resources for $1.7 billion, Chevron’s OML 52,53 and 55 acquired by Britannia-U for $1,015,000,000.00.Though Chevron’s OML 52,53 and 55 is still a subject of litigation between Britannia-U and Seplat.

Some of these assets were acquired through a marginal field programme designed by the government to boost the participation of indigenous companies in the country’s oil and gas sector. The timing of the programme also coincided with IOC’s divestment of their interests in onshore acreages.
Most of the fields offered under this scheme are mainly onshore and on the shelf. Many of the operators that won the bids in the last marginal field bid round in 2004 are still grappling with various challenges in bringing the fields into production, while the expected upswing in developing local capacity has not necessarily materialised in all cases.
Unfortunately,the Department of Petroleum Resources (DPR)- the regulator which supervised the sale of the bidded fields,has failed to ensure that they are brought to production or at the best withdraw the licenses given to the winners.
Recall that about 115, barrels of crude oil per day, estimated at $6.9 million,was shut-in last year June, as Nigerian Petroleum Development Company (NPDC) workers, an arm of the Nigerian National Petroleum Corporation (NNPC), went on strike over the operatorship of one of the Shell divested assets located in oil mining lease (OML) 42, transferred to the private sector joint venture partner of NPDC – Neconde Energy Limited.
The workers further protested in subsequent months of 2015, to halt further transfer of operatorship of about five more divested blocks by the Federal Government.
Already private sector investors that bought Shell assets and are in Joint Venture with NPDC decried the attitude of the striking workers because production is shut-in and they were losing money. Besides, the JV partners said because NPDC operates the oil blocks, the assets are hugely under-produced resulting in substantial loss or revenue.
The indigenous private sector JV partners of NPDC are Neconde Energy Limited for oil mining lease (OML 42), Elcrest Exploration and Production Nigeria Limited for (OML 40), Shoreline Natural Resources Limited (OML 30), ND Western Limited (OML 34) and First Hydrocarbon Nigeria FHN/ Afren (OML 26).
Commenting on the inability of some of these assets to come on stream years after acquisition, Director, Centre for Petroleum Economics, University of Ibadan, Prof Adeola Adenikinju, said a lot of factors could have been responsible for this.
He listed bureaucratic bottleneck, funding, Petroleum Industry Bill and operatorship rights as well as capacity issues as some of the challenges confronting the smooth take-off of some of the assets.
He explained that, the Federal Government represented by the Nigerian National Petroleum Corporation (NNPC) holds the largest stake of 55 percent in all the Joint Venture operations(JV),and as such, would want to be the operator in most cases, leading to a disagreement between it and buyer of the asset.
This, he said, had led to several disagreements between it and its new partners, adding that, most of the time, the new owners of the stake would want to be the operator, believing that, it could manage such assets better.
On the other hand, he said government bureaucratic posture, most time contribute to the delay in the take-off of projects and production, stating that, for very asset sold by an old JV partner, the Minister and other JV partners must sign off such projects, before ownership is transferred to the new entrant.
Also, he said, the Petroleum Industry Bill(PIB) which is yet to become a law is a stumbling block to the wheel of progress for the country’s oil and gas sector, saying no financial institution, would be willing to stake it’s resources in an atmosphere of uncertainty.
Adenikinju equally argued that the local firms in most cases lack the financial muscle to carry with exploration in these fields because they don’t have what it takes to secure foreign funding, which is an edge that the IOCs have over them.
Corroborating the position of Adenikinju, President, Nigeria Liquefied Petroleum Gas Association (NLPGA),Mr. Dayo Adeshina, said the time it takes to sign off deals in the oil and gas sector remained a challenge to stakeholders.
Citing the case of Oando in the Conocophillips acquisition Aiteo , Adeshina said, it took almost two years before the deal was finally signed off by the then Minister, saying, that was even done towards the tail end of the last administration.
He said sourcing manpower is equally another challenge that makes the took off of fields to drag longer than necessary, he equally cited the case of Aiteo as an example in this instance, explaining that for a player in the downstream sector to transit upstream are different ballgames.
‘‘Hiring expertise is not cheap, especially in exploration. You know Aiteo was initially a trading company transiting into exploration. So they will need to look for the right expertise, and this takes time,’’he said.
On oil price, both Adenikinju and Adeshina, submitted that, most of the acquired fields, especially those operated by marginal field operators, will remain idle for sometime because it may not be profitable for them to go into production at this time.
Adeshina projected a timeline of two years, before some of these fields would commence exploration activities, adding that some of them may not be able to expand the initial production capacity they met on ground prior to acquisition.
On operatorship, he differed with the don, saying by law NNPC as the majority stakeholder in all the JV operations has the right to operatorship, advising that, NNPC should live room to superior argument to carry the day.
He maintained that, there was nothing bad if a minority shareholder in a JV operation has the right expertise, then it could go ahead to operate the field.
The NLPGA President insisted that, the challenge was more of funding constraints than operatorship rights, giving kudos to NNPC for securing $1.2billion alternative funding model for 36 oil wells under the NNPC/ Chevron JV and challenging it to come up with more of such models for its JV operations, in order to ease funding constraints.
The gas expert called on NNPC to give its upstream arm, Nigerian Petroleum Development Company (NPDC) full autonomy to run its activities, so that it could quick investment decisions on its own, rather than waiting on Abuja, which is saddled with a lot of bureaucratic bottlenecks.